HMRC Leaps into Action

HMRC has been given substantial funding with the aim of raising an additional £7 billion each year – so unsurprisingly if has been very busy with a wide range of initiatives.

A new approach for HMRC is to use task forces for an intensive burst of activity targeting specific business sectors and locations where there is a high risk of tax evasion.  The first task force focused on the restaurant trade in London, with Scotland and the North West to follow.  The most recent task force tackles VAT abuse in London’s fast food outlets, with nine further task forces planned for 2011/12.  The latest software makes it very easy for HMRC to compare tax returns of different businesses, and to identify those that appear not to be doing so well.

HMRC is following up the Plumbers Tax Safe Plan with the VAT initiative, aimed at businesses that are trading above the VAT turnover threshold of £73,000, but are not VAT registered.  HMRC is writing to more than 40,000 businesses to make them aware of the initiative.  Businesses have until 30 September to notify HMRC of their intention to take part, and VAT registration is then required by 31 December.  A penalty of just 10% is likely to be charged on VAT that is paid late.

It has been estimated that last year HMRC investigated more than 9,000 inheritance tax valuations.  Many estates are only subject to tax because of the value of the deceased person’s home, and it is often a family member who takes on the task of administering the estate.  With a 40% tax rate, if can be tempting to value property below its true worth.  However, an undervaluation of, say, £25,000 will mean additional tax of £10,000 and a penalty of up to 100%.  It is therefore advisable to obtain several valuations and to have property professionally valued.

Finally, in an effort to collect tax as quickly as possible, HMRC has been sending letters to taxpayers  informing them that HMRC will be collecting and selling their goods in lieu of outstanding tax.  However, in many cases nothing is actually owed or payment plans have already been agreed.

Business confidence tumbles as economy trembles

Business confidence has plummeted by a record amount as fears persist the economy is set to contract in the final quarter this year.

The BCM Confidence Index collapsed from +8.1 in the third quarter to -9.7, according to the latest figures from ICAEW.

The index – a close indicator of GDP growth - is now at its lowest level since the nadir of the 2009 recession, fuelling concerns the economy will shrink by some 0.2% in the final quarter.

Growth for 2011 would therefore be 0.9% - a sharp drop on the 1.7% projected earlier this year.

The index revealed confidence across all business sectors has fallen, with just energy, water and mining remaining in positive territory at +2.3.

Weak property sector

The property sector is in the weakest position with confidence tumbling to -18.7, followed by banking, finance and insurance with -14.6.

Michael Izza, Chief Executive of ICAEW, said: "In the first nine months of the year, businesses have played their part in supporting economic growth.

"Many are proud of their success against a backdrop of a very slow and protracted recovery. Yet they are becoming increasingly worried about the immediate outlook and the risk of a double dip recession.

"They are looking to the Government which now needs to take urgent steps to restore business confidence and to show that it understands the need to rapidly change the mood that the business community clearly feels."

Turnover and profit growth expectations have now declined for two successive quarters, which has been compounded by a steep drop in capital investment growth expectations.

Headcount freeze

In total, more than three-fifths of UK companies are operating below capacity with the number of new employees expected to increase by just 0.9% as companies refrain from taking on new staff.

One ray of light was the BCM predicting – in line with the Bank of England – that the inflation rate will fall in 2012.

UK SMEs pessimistic about economy

Nearly three quarters of small businesses believe the UK economy will re-enter recession in 2012, according to new research from a credit reference agency.

In a sign that business confidence is still very low amongst UK small and medium-sized enterprises (SMEs), 73% of those polled by researchers anticipated that another recession was on the horizon, despite official figures revealing growth in the economy in the last three months.

Over 90% of small businesses also argued that the government should do more to encourage banks to lend to them, according to new research from credit reference agency, while only 8% of credit managers polled believe that the establishment of an SME bond market by the government would help businesses access funding. Over a third (38 per cent) predicted that such a fund will have no impact on firms seeking funds for growth.